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Beyond Age Rating: Spreading Risk in Health Insurance Markets

This AARP Insight on the Issues, written by Lynn Nonnemaker of AARP's Public Policy Institute, discusses the ways that age-rated premiums, risk adjustment, and risk sharing can be used to ensure that individuals have open access to health insurance and that plans are compensated fairly for the costs of insuring both sick and healthy individuals, while encouraging plans to manage costs efficiently.  The paper finds that age-rated premiums are expensive for older individuals, and that risk adjustment and risk sharing are effective at discouraging risk selection of healthier individuals while protecting insurers from large financial losses. The paper also reviews how risk adjustment and risk sharing strategies are currently being used in three settings: the Medicare Advantage program, the Medicare Part D program, and the Dutch healthcare system. Finally, the paper briefly discusses the role that risk adjustment and risk sharing may play in health reform.

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